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Comment by spiffytech

3 years ago

From the Section 174 text:

    26 U.S. Code § 174 - Amortization of research and experimental expenditures 
    (c) Special rules
    (3) Software development

    For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.

https://www.law.cornell.edu/uscode/text/26/174

To me it doesn't sound like classification is discretionary to me, or that splitting semantic hairs will prove effective (IANAL).

(Additionally, the R&E classification is different from R&D)

4 comments

spiffytech

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dcow  3 years ago

Guys, this entire section is under the ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS section. Taking a deduction is never mandatory (though usually recommended if applicable). Context matters.

> In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part,

Generally, these sections explaining deductions, including 174, are things you adopt. From the beginning of the section

> (a) In general

> In the case of a taxpayer’s specified research or experimental expenditures for any taxable year—

Everything that follows is subject your specified R&E. Which is all part of the itemized deductions framework which is all completely discretionary.

For instance, here’s section 162

> a) In general

> There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—

> (1) a reasonable allowance for salaries or other compensation for personal services actually rendered;

You are simply carrying on business ordinarily. People don’t operate businesses on R&E expenditure. It’s just not a rational interpretation of the tax code and you don't even need to be a lawyer to read this document or form that conclusion.

https://news.bloombergtax.com/tax-insights-and-commentary/ch...